RETAIL CONTRACTS

Electricity consumers can also choose to purchase electricity from a licensed retailer.

Like interest rates or gas prices, future electricity prices cannot be predicted with absolute certainty. Contracts can add an element of certainty because they allow you to lock in your electricity costs for the term of the contract. Despite the many benefits a contract can provide, you should learn about your options to determine whether signing a contract is right for you.

Not all retail contracts are the same - most offer a fixed price over a period of time or, for business customers with interval meters, contracts can provide a fixed price for a block of kilowatt hours. Before you sign a contract, read it carefully so you're aware of all terms and conditions. Ask questions if anything is unclear, or if you are unsure.

Consumers may choose to enter into a retail contract for a variety of reasons. In many cases, consumers may pay a higher rate in exchange for price stability and predictability that a contract provides. Retailers may also offer services with a retail contract, such as energy-saving programs, energy audits, equipment maintenance or the option to have a portion of the rate support renewable energy projects. Read below to learn more so you can make a more informed decision about how to purchase electricity.

Residential and Low-Volume Business Customers

For residential and low-volume business consumers who are under the Regulated Price Plan (RPP), price fluctuations are less noticeable in the price you pay for electricity. The Ontario Energy Board (OEB) adjusts the rates twice a year to reflect the variance between the amount customers paid for power and the cost of supplying it. Some RPP customers may still choose to enter into a fixed- or variable-price contract through a retailer because it offers them the certainty that a long-term contract can provide.

Since the OEB sets RPP prices based on a forecast of supply cost over a period of time, there is likely to be a difference, or variance, between what RPP customers pay and the actual cost of supplying power, which is accumulated in a variance account. The balance in the variance account is the amount that RPP customers have over or underpaid compared to the actual cost of supply. The OEB regularly calculates a RPP Variance Settlement Factor by dividing the balance in the variance account by the total consumption of all RPP consumers over the past 12 months. The RPP Variance Settlement Amount for a consumer that is leaving the RPP takes into consideration the amount that customer has consumed over the past 12 months and the current RPP Variance Settlement Factor. For example, if it is estimated that RPP consumers paid more than the supply costs, the RPP Variance Settlement Amount would be a credit. Consumers that remain on the RPP are also responsible for the RPP Variance Settlement Amount, but pay it (or are paid it) through the actual RPP price. The OEB incorporates the variance account balance, whether it is a surplus or a deficit, into the calculation used to set the next RPP price.

Each month the OEB updates the RPP Variance Settlement Factor on their website. You can estimate the amount you owe (or are owed). The figure that applies to you is the one in effect on the date your final meter reading takes place, to ensure you pay (or receive) your share of the variance account upon leaving the RPP. Note that to date, the RPP Settlement is usually a charge.

An RPP customer can enter into a retail contract for up to five years. As an RPP customer, you can rescind the contract by giving written notice to your retailer within 10 days of signing.

Large-Volume Business Customers (using greater than 250,000 kWh/year)

Some large-volume business consumers who pay the wholesale price of electricity (paying greater than approximately $2,000 per month) may choose to enter into a contract for all or part of their electricity use, in order to hedge against fluctuations. Learn more about other factors that impact the wholesale price.

Depending on the options presented by the retailer, businesses could pay a fixed or market-indexed price for some or all of their electricity use. This could improve their business planning by allowing them to better forecast their electricity costs.

Know What You’re Paying For - and Entitled to Receive

Whether you are an RPP or large-volume customer, the contract you sign only covers the commodity cost. Delivery charges, regulatory charges, debt retirement from the former Ontario Hydro, and other charges will still apply and customers will still see these items on the bill. When choosing a retailer, remember that the prices you will compare only apply to the commodity (electricity) charge.

There are, however, a number of adjustments that affect the final price you pay. Understanding these adjustments will help you better compare contracts to make the best decision for you.

Adjustments to Your Bill

All customers in a retail contract receive the Provincial Benefit, which can be a credit or charge. This adjustment accounts for differences between the market price and rates paid to Ontario Power Generation’s regulated facilities (known as OPG’s prescribed assets), and contracted generators such as Non-Utility Generators and contracted suppliers. Read about the types of facilities that affect the Provincial Benefit. You will receive a credit (or charge) for the Provincial Benefit regardless of your contract because it cannot be assigned to a retailer.

The OPG Rebate reflects the difference between market prices and the set price the government has placed on output from certain generators owned by Ontario Power Generation (OPG). Unlike the Provincial Benefit, the OPG Rebate can be assigned to a retailer. If you do not sign this rebate over to your retailer, they are obliged to forward it to you when it is paid out each quarter. The government has guaranteed the OPG Rebate until April 30, 2009. As a result, a retail contract could extend beyond the timeframe of the OPG Rebate so this adjustment may not be applied to your bill for the duration of your contract.

Retail Contract Checklist

For all customers, these are some questions for you to consider before entering into a contract with an electricity retailer:

• Does the retailer have a licence from the Ontario Energy Board and can they provide proof?
• Does the contract require that I transfer my OPG Rebate to my retailer?
• What is the price of electricity being offered and how does it compare with the price to-date?
• If I am an RPP customer, what is my RPP Settlement?
• Is the price fixed or will it increase (or decrease) in the future?
• How does it compare with my current service provider or other suppliers?
• Are there any fees or charges that I would be required to pay?
• Could I be required to pay charges if I leave before the contract ends?
• When and for how long does the contract take effect?
• Does the contract cover all or part of the electricity I will consume?
• Does the contract change if a smart meter is installed before the term of the contract?

(Source: OEB website)

Evaluating your options
The Ontario Energy Board regulates the energy sector and provides a list of retailers licensed to operate in Ontario. These retailers are obliged to follow a Code of Conduct.